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Consumers are mistakenly carrying a balance to improve their credit scores

Regular Contributor

Consumers are mistakenly carrying a balance to improve their credit scores

https://www.usatoday.com/story/money/personalfinance/2018/07/02/credit-rating-mistake-carry-balance-...

More than 1 in 5 credit-card users, or 43 million Americans, carry a balance – or pay the minimum to credit-card companies, thus always owing them money – to help improve their credit scores, according to a new report from CreditCards.com. But carrying a balance is not one of the factors that go into creating a FICO credit score. …

… Millennials are most likely to carry a balance due to a “function of inexperience and lack of financial education over the course of their lives,” Schultz said.

The study also found that 27 percent of cardholders without a college degree have done this, versus 12 percent with a college education. And 30 percent of credit-card users making less than $50,000 a year have wrongly sought to improve their credit scores by carrying a balance, compared to 19 percent of those earning more than $50,000.

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So teach a young person you know about credit!
Message 1 of 7
6 REPLIES
Established Contributor

Re: Consumers are mistakenly carrying a balance to improve their credit scores

Thanks for sharing this article!

Starting Scores FICO 8 (Feb '18):
EX- 519, TU- 530, EQ- 545
Goal Score: 700 across the board



Message 2 of 7
Established Contributor

Re: Consumers are mistakenly carrying a balance to improve their credit scores

Most people who have some idea of how credit scoring works know you need to "report a balance" on your monthly statement. Obviously this isn't the same thing as "carrying a balance", but I can see how the wording can be confusing to people. 



8/4/18:

Message 3 of 7
Community Leader
Super Contributor

Re: Consumers are mistakenly carrying a balance to improve their credit scores

Arkane raises a good point.  Depending on how the questions in the survey were phrased, some of the respondents might have said that they were carrying a balance when they meant reporting a balance.  Even people who are readers of these forums will often use the phrase "carry a balance" when they mean report.

 

Without getting access to the exact wording for the questions we can't know how reliable this journalist's piece is.

 

We do know that the journanist is confused about some things.  For example the journalist claims that carrying a balance is the same thing as making the minimum payment, which it is not.

 

Another way the survey wording could lead to mistaken conclusions is failing to distinguish between engaging in a behavior once in the past and regularly engaging in it now.  In my own case, for example, I carried a small balance for a few months about 12 years ago because I thought it would improve my credit.  But then I learned better and have not done so since.  Classifying me in the group that is misinformed because of doing something once 12 years ago is like calling somebody a smoker because he smoked one cigarette 20 years ago.  If you look closely at the wording here, you'll see that there is a likely conflation of past vs. present behavior:

 

"The study also found that 27 percent of cardholders without a college degree have done this, versus 12 percent with a college education. And 30 percent of credit-card users making less than $50,000 a year have wrongly sought to improve their credit scores by carrying a balance, compared to 19 percent of those earning more than $50,000."

 

Have done this, is past tense, and could mean have done this once in their lives many years ago.  As opposed to are doing this.  Likewise have wrongly sought is past tense compared with are wrongly seeking.

Message 4 of 7
New Contributor

Re: Consumers are mistakenly carrying a balance to improve their credit scores


@pdxmike wrote:
https://www.usatoday.com/story/money/personalfinance/2018/07/02/credit-rating-mistake-carry-balance-...

More than 1 in 5 credit-card users, or 43 million Americans, carry a balance – or pay the minimum to credit-card companies, thus always owing them money – to help improve their credit scores, according to a new report from CreditCards.com. But carrying a balance is not one of the factors that go into creating a FICO credit score. …

… Millennials are most likely to carry a balance due to a “function of inexperience and lack of financial education over the course of their lives,” Schultz said.

The study also found that 27 percent of cardholders without a college degree have done this, versus 12 percent with a college education. And 30 percent of credit-card users making less than $50,000 a year have wrongly sought to improve their credit scores by carrying a balance, compared to 19 percent of those earning more than $50,000.

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So teach a young person you know about credit!

 

It's so strange because everyone around me at work, in the family always say carry a balance.  I thought long ago that carrying a balance didn't actually help your score, and now I'm proven correct!  People dismiss this though as garbage.  At least the educated know!  Thank you for sharing.

 

😆

Message 5 of 7
Established Contributor

Re: Consumers are mistakenly carrying a balance to improve their credit scores

Are you sure they actually meant "revolve a balance month to month" and not "let the statement show a non-zero balance" when they say "carry a balance"?



8/4/18:

Message 6 of 7
Community Leader
Super Contributor

Re: Consumers are mistakenly carrying a balance to improve their credit scores

Arkane can explain the difference between reporting a balance and carrying a balance, if it is unclear.  It's a really important difference.

 

He's rightly observing that we really don't know how significant the article is because we don't know what the survey is in actuality assessing.  How much is it measuring a misuse of terminology vs. a mistaken practice?

 

In fact, to the extent that a survey respondent is just saying carrying when he means reporting, he's probably got a better intuition than the author of this piece, who does not appear to be aware that reporting a balance (on at least one card) does indeed give you an advantage over not reporting.

Message 7 of 7